AirAsia to cut debt with funding; stock falls 6 pct

04 Aug 2009

KUALA LUMPUR- Southeast Asia's largest budget carrier, AirAsia (AIRA.KL), has seen strong demand for its share issue worth $172 million, which it will use to reduce its debt, Chief Executive Officer Tony Fernandes said on Tuesday.

The airline plans to place up to 481.1 million shares, representing a 20 percent stake, to buyers to be identified later, sending its stock 6 percent lower.

As of mid-June, AirAsia was one of Airbus's biggest customers in terms of outstanding orders.

Fernandes said the company's new shares will be priced at a 5-10 percent discount to the market price of AirAsia shares at the time of issue.

"There's a lot of liquidity in the market. We think (now) is a good time to reduce our gearing," he told Reuters by telephone.

By 0400 GMT, AirAsia shares were down 6.5 percent at 1.44 ringgit with more than 5.0 million shares traded against a daily average of 4.3 million shares over the past 30 days.

Maybank Investment Bank analyst Khair Mirza said the airline's gearing will drop to 3 times by end-2009 from 3.8 times. "But we consider the 17 percent earnings per share dilution a steep price to pay for a temporary respite," said Khair, who has a sell recommendation on the stock.

AirAsia has received strong expressions of interest from both foreign and local institutional funds for the new shares, Fernandes said, adding that the placing is expected to be completed by the second week of September.

The stock has jumped 69 percent so far this year, outperforming a 34 percent rise in the broader market .KLSE.

"We recommend investors to switch to Malaysia Airports (MAHB.KL) for low-risk leverage on the air travel market's potential recovery in 2010," said Maybank's Khair.

AirAsia releases its second-quarter results on August 12.